The income statement allows users to evaluate the current performance of a firm and estimate its future performance. Some argue that accounting earnings reported on the I/S are not necessarily a realistic measure of economic income because of the ability of managers to manipulate reported profits through earnings management.

1. Discuss several earnings management techniques managers may use to manipulate net income.
2. Are these techniques illegal? What does this type of accounting signal about the earnings quality of an entity?
3. Can you find any recent examples of earnings management in the popular press?